Even during the Great Depression the world turned to the United States for guidance and some answers to the financial woes of those times. For over 95 years the “Dollar” has been the dominant currency in the world and even to this day “oil” trades in dollar prices. Folks, that is fast coming to an end; there are forces at work from Russia, China, international financial experts and the (oil) Arab Gulf States to ditch the dollar as the recognized reserves currency. I stated in my last post the Dollar would collapse and that I believed it would be sooner than what we would want. Let me try and put some time frame on that statement. First I believe that the Euro and English Pound will totally fall before the dollar does and further believe that this will happen over the next 120 days. The dollar, though in a weakened state, will survive for a while due to the large amount of debt held by other nations. One thing remains very clear; America is no longer the leader of the Free World or the expressed definition of “Capitalism”. Why is this? For starters we have made the mistake of thinking that all other nations would blindly follow without questioning, and here is what the world sees and questions: an official national debt of $11.8 Trillion (this figure grew to $12 Trillion during the last three weeks), unfunded national obligations of $104 Trillion, an estimated (low figure) $9 Trillion in cumulative deficits over the next ten years and a very strong possibility of over $1 Trillion for “Health Care Reform”. All this adds up about $125, 8 Trillion; and we haven’t even considered the energy bill. If we were to assume that effective today there would be no new government spending, no new social programs, no new wars, no new disasters of nature, an immediate end to the current recession, no unforeseen economic disasters and the unemployment numbers dropped to below 5%; and the government was able to pay off the debt at one Billion dollars per day it would take the government 345 years to pay off the debt. Of course many of us know that the government will simply allow the dollar to be devalued so the debt may be paid in cheaper dollars. But the devalued dollar also affects our personal finances. For all of you hard core liberals that had that warm feeling running down your leg when Obama spoke consider this: since the democrats took control of Congress in 2006 the deficit has exploded an unbelievable 770 per cent and Reid/Pelosi/Obama are still looking for ways to spend more, that October had the lowest job openings since the year 2000, that from the day Reid/Pelosi took control of Congress the unemployment rate went up each month and since Obama took the White House unemployment went from 7.2% (Dec-2008) to 9.8% (Sept-2009), the 9.8% by the way is more than doubled what Bush has prior to the liberals control of Congress. Let me close by saying what I have been saying since part I of this series; we are entering a severe depression. I am saying this at a time when the Stock Market has held on to 10,000 for almost one week (and a seven month rally); but consider this: the Stock Market first reached the 10,000 in March 1999, WOW-some progress-back to where it was ten years ago. If you consider that the dollar has lost value (and falling) of almost 25% then we would have to accept the 10,000 as 750. The reality of the day is that the leadership of Reid/Pelosi/Obama is only giving us eternal debt, increased government spending (stimulus) and widening the “cultural of corruption” to the highest level this nation has ever seen.

Martin here with the most shocking new numbers I’ve seen in my lifetime.

My conclusion: Fed Chairman Bernanke has dumped so much funny money into the U.S. banking system and has done so little to manage how that money is used, the fate of our entire economy has now been cast under a dark shadow of doubt.

This is not conjecture or exaggeration.

Nor are the underlying facts subject to debate.

They are blatant, unambiguous, and fully supported by the Fed’s own data …

Fact #1. Up until the day Lehman Brothers collapsed in September of last year, it took the Fed a total 5,012 days — 13 years and 8 months — to double the cash currency and reserves in the coffers of U.S. banks.

In contrast, after the Lehman Brothers collapse, it took Bernanke’s Fed only 112 days to double the size of U.S. bank reserves. He accelerated the pace of bank reserve expansion by a factor of 45 to 1. (Click here for the proof.)

Imagine a crowded interstate highway with a speed limit of 55 miles per hour and with a long tradition of allowing no one to exceed the limit by more than 20 or 25 mph.

Suddenly, a new driver appears on the scene with a jet-powered engine that accelerates to a supersonic speed of 1,350 mph.

That’s the same magnitude of change Fed Chairman Bernanke has presided over.

Fact #2. Even in the most extreme circumstances of recent history, the Fed never pumped in anything close to this much money in such a short period of time. Indeed …

Before the turn of the millennium, the Fed scrambled to provide liquidity to U.S. banks to ward off a feared Y2K catastrophe, bumping up bank reserves from $557 billion on October 6, 1999 to $630 billion by January 12, 2000. And at the time, that was considered unprecedented — a $73 billion increase in just three months. In contrast, Mr. Bernanke’s recent money infusion is $1.007 trillion or 14 times more!

Similarly, in the days following the terrorist attacks on the World Trade Center and the Pentagon, the Fed rushed to flood the banks with liquid funds, adding $40 billion in the 14-day period between 9/5/01 and 9/19/01. Mr. Bernanke’s recent trillion-dollar flood of money is twenty five times larger.

Fact #3. After the Y2K and 9-11 crises had passed, the Fed promptly reversed its money infusions and sopped up the extra liquidity in the banking system. But this time, Mr. Bernanke has done precisely the opposite: Since he doubled the currency and reserves at the nation’s banks with his 112-day money-printing frenzy in late 2008, he has thrown still more money into the pot.

Fact #4. With no past historical precedent, no testing, and no clue regarding the likely financial fallout, Mr. Bernanke has invented and deployed more weapons of mass monetary expansion than all prior Fed chairmen combined.

None of these existed earlier. All are new experiments devised in response to the debt crisis.

Fact #5. The single biggest new facility is the Fed’s purchases of mortgage-backed securities (MBS). This massive operation began on January 7 of this year with only $10.2 billion. Now, just nine months later, the Fed has bought up a cumulative total of $924.9 billion, the largest money infusion by any central bank into any single market sector of all time.

Simply put, theFed has been buying up virtually all the junk and nonjunk mortgages it can lay its hands on.

Fact #6. Mr. Bernanke would have you believe that he can carefully control how the banks use all this free money, with an eye toward preventing a sudden bout of inflation.

In practice, however, he’s doing nothing of the sort.

For example, the theory is that if the Fed merely arranges for the U.S. Treasury Department to borrow back most of the excess bank reserves, the Fed could keep the money out of the banks’ hands, prevent them from multiplying it with big lending, and ward off the ultimate inflationary consequences.

But, as pointed out by Econbrowser.com, the reality is that the Treasury is absorbing only a small fraction of the banks’ bloated reserve balances (green area in chart).

The bulk of those reserves (green area) are readily available to start multiplying through lending — and to set off an uncontrollable vicious cycle of too much money chasing too few goods.

Fact #7.If the bank lending were mostly to American businesses, it might at least help rebuild the U.S. economy. However, right now, the only big lending we see is to finance a new speculative fever that has swept the globe — the borrowing of cheap dollars to buy high-yield investments. (See Mike Larson’s “Easy-Money Fed Fueling Dollar Carry Trades” and “Getting Inside the Fed’s Head.”)

Fact #8.The nation’s money supply is exploding. In August, money in circulation and in checking accounts (M1) expanded at the breakneck speed of 18.6 percent compared to the year earlier. That was …

Three times faster than the average M1 growth rate of the 1970s, which helped create the worst inflation of our era;

Over SIX times faster than theaverage M1 growth rate during the half century prior to September 2008; and

The single fastest M1 growth rate ever recorded by the Federal Reserve.

The Consequences

This overabundance of high-powered money flooding into the nation’s banking system and money supply can have only one consequence: To cheapen the value of each dollar you own.

Yes, Mr. Bernanke has temporarily tamped down the Wall Street debt crisis. And yes, he has managed to replace fear with greed … convert the flight to safety into the lust for risk … and transform falling markets into rising markets.

But look at the price we are paying:

The solvency concerns regarding major financial institutions have now been replaced by looming solvency threats to the U.S. government itself.

The debt crisis of 2007-2008 has been transformed into the dollar crisis of 2009-2010.

Clearly, in this environment, following traditional investment norms with conventional investment vehicles could be dangerous; and evidently, an entirely different approach to investing is now a must.

For specific instructions, be sure to view (or review) our recent 1-hour video, Washington’s War on the Dollar. But do not delay. It goes offline this week.

Good luck and God bless!

Martin

P.S. Here’s the proof of the 45-to-1 acceleration in reserve growth: On December 21, 1994, the cash currency and reserves at U.S. banks was reported by the Fed at $426.6 billion. Subsequently, it took 5,012 days for that figure to double, reaching $849.9 billion on September 10, 2008, the Fed’s last reporting period prior to the failure of Lehman Brothers.

Following that date, however, as the Fed responded with new, unprecedented open market operations, it took a mere 112 days to double, reaching $1,702.2 billion on December 31, 2008. (To return to the article above, click here.)

Money and Markets (MaM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Nilus Mattive, Claus Vogt, Ron Rowland, Michael Larson and Bryan Rich. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MaM, nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MaM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical in as much as we do not track the actual prices investors pay or receive. Regular contributors and staff include Kristen Adams, Andrea Baumwald, John Burke, Amy Carlino, Selene Ceballo, Amber Dakar, Dinesh Kalera, Red Morgan, Maryellen Murphy, Jennifer Newman-Amos, Adam Shafer, Julie Trudeau, Jill Umiker, Leslie Underwood and Michelle Zausnig.

Attention editors and publishers!Money and Markets issues can be republished. Republished issues MUST include attribution of the author(s) and the following short paragraph:

This investment news is brought to you by Money and Markets. Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com.

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Back in January of this year I wrote that this Administration would lie and take whatever steps necessary to cover the truth about the economy and thus far during the last ten months that is exactly what they have done. Nothing that has came out of the administration and Congress on the current economic health and the future (actual) cost of their (income distribution) “health care for all” and “energy” bills has stood the test of the CBO. The biggest lie of this process to date is the Democratic Congress and White House blaming the GOP and Fox News for the failure of their agenda to pass; the truth: the democratic controlled Congress has not been able to get their own party to agree. We are all aware by now that this administration had no idea whatsoever what (if any) good would come of their $787 Billion “stimulus” bill. They were wrong on their expectations for the unemployment rate, they were wrong on their expectations of creating or saving “jobs” and we will soon see that they were wrong on the future strength of “bailed out” banks and auto companies. However they are not wrong on their plans for the remainder of the “stimulus” bill amount; here it is: as of September only $151 billion had been spent, they claim that $185 billion will be spent later this year. They have reserved $399 billion for next year (WOW-IRONIC isn’t that about the time that the democrats start running for “re-election”? Another $134 billion is to be spent by the end of 2011; isn’t that about the time that Obama starts his “re-election” process. What we have seen thus far is that the “stimulus” $787 billion has and will be wasted on political payback and the expansion of government intervention/influence over the economy and our daily lives. The President has surrounded himself with “inexperienced” advisors who at best are experimenting with the future of our Nation’s wealth and security. Mr. President, all your charismatic speeches and promises CANNOT change the outcome of your actions and the American People are waking up to the possibility that your inexperience prevents you from knowing the difference between “campaigning “and “governing. America, be not deceived, don’t let the recent rally in the stock market (a little over 10,000) give you comfort, I don’t see anything in the economy with any substance to back up the stock market numbers. Here it is: 70% of the U.S. economy is driven by growth in consumer borrowing and spending: in September; the FED reported that consumers slashed their borrowing in July by the largest amount on record, unemployment is the highest in 26 years, the decline of $21.6 billion in consumer credit was seven times higher than expected and if this decline in borrowing and spending continues we will very soon see corporate earnings decline. I’ve said this twice in other parts of these series and here it is again, over the next 90 days look for bad signs/news on “commercial real estate” and “bank failures” I’m not an economist or Wall Street theorist so I cannot fully explain the “10,000” wall street number but I do fully understand that there is nothing in our economy with any substance and everything out of the White House is deceitful at best. Actually the only possible bright future that Wall Street might have in the near future is “commodities”; our currency is probably going to collapse completely and it might not be as far away as we might want it to be. I’ve said this in every post of this series and I still believe it: we are probably seeing the beginning of a very long and severe economic depression. Conservatives, Republicans, faith-based and middle-class Americans of any party, ethnic back-ground, age and social status WAKE UP and GET INVOLVED: IT IS NOT EVIL, IT IS NOT GREED and IT IS NOT WRONG TO WANT TO ACHIEVE RICHES, TO DESIRE INDIVIDUAL FREEDOM, TO WORK HARD FOR SUCCESS AND MORAL FREEDOM FROM “STATE” INTERVENTION. IT IS NEITHER RACISM NOR BIGOTRY TO DISPISE THOSE THAT WANT GOVERNMENT TO TAKE FROM US AND GIVE TO THEM SO THEY WON’T HAVE TO WORK.

I had hoped to have the inflation (deflation) rate for September for this writing; they have not yet been published. Read part IV of this series for my thoughts on inflation in comparison with 1929 – 1934. Keep in mind that we have been deflationary since January of this year. Throughout these series I have also discussed our unemployment rate and my feelings on the process the government uses to arrive at their figure. There are a few internet sites (type in-real unemployment rate) where you can be enlightened on the “comical” process involved in determining the national unemployment rate; to lengthy to make it a part of this post; let me simply say that if the government (Bureau of Labor Statistics) used the same formula used 80 years ago (1929-the Great Depression) the actual national unemployment rate at the end of September would be 19.3% and a possible high of 20.10%. I wrote back in April of this year (when unemployment was 8.9%) that between October, 2009 and March 2010 unemployment would be at a low of 13%. Bureau of Labor Statistics is reporting the current unemployment rate at 9.8%. Was I ever off; and not in a positive manner, I do indeed believe that the actual unemployment rate today is in fact between 17.5% and 19%. I stated also back then that some areas of the nation would be approaching 25% during this time frame. On September 4th a liberal organization wrote that the actual unemployment rate at the end of August was 16.8%. This year alone 9.1 million part-time workers which would prefer full-time jobs were not counted as unemployed and 800,000 who quit looking for jobs that aren’t there are not counted as unemployed. I have stated various times throughout these series that we have not seen the bottom and worst of our economic situation; the bottom will not come until approximately 4-7 months after “commercial real estate” bottoms out. The “commercial real estate” bust will sky rocket bank failures and a surge in the unemployment rate. Here it comes; commercial real estate office space vacancy rate hit a five year high of 16.5%, office space rents fell 8.5% in the third quarter (the steepest fall since 1995) and in New York City office rents are down 18%% over the last 12 months. The Moody/commercial property price index (price index for REITS) fell 5.1% or 39% from its October 2007 high. So far this year bank failures are ten times the average for the last 8 years. If you’ve been watching the stock market over the last six weeks or so, you would be hard pressed to accept the above as anything but “corrections” in our economic downturn and possibly accept that we have seen the bottom. I just don’t see anything coming out of this administration (politically and economically) to support an upturn in the economic state of our nation. In a few weeks I will start another series dealing with the “demise of the Dollar” and eventual degradation of our standing in the world. My current research reveals that this is in the making even as I write this. On Friday I will share some thoughts with you on the word “Stimulus”. I continue to be amazed at the “left-wing” pundits and strong supporters of Barack Obama as I see them all over the “news” and talk shows. They are still blaming Bush for everything wrong and certainly ensure that we are to understand that the current economic situation is his entire fault. Consider this: In 2000 George Bush inherited an unemployment rate of 4.0% from Bill Clinton; at the end of 2002 it had gone up to 6.0%; however, from January 2003 to December 2006 he brought it down to 4.4%. What happened at the end of 2006 was that the liberal Democrats took over the House and the Senate and here are the results: unemployment January 2007-4.6%, December 2007-4.9%, January 2008-4.9%, and December 2008-7.2%. Ten months in office and this administration has taken unemploymentnfrom a January-7.6% to an October-9.8%, I don’t give any consideration to my beliefs on the “actual” rate because the Bush administration also used the same standards for their rate.

When our leaders have no awareness of the disastrous consequences of their actions, they can claim ignorance and take no action.

Or when our leaders have no hard evidence as to what might happen in the future, they can at least claim uncertainty.

But when they have full knowledge of an impending disaster … they have proof of its inevitability in ANY scenario … and they so declare in their official reports … but STILL don’t lift a finger to change course … then they have only one remaining claim:

INSANITY!

And, unfortunately, that’s precisely the situation we’re in today: Three recently released government reports now point to fiscal doomsday for America; and one of the reports, issued by the Congressional Budget Office (CBO), says so explicitly:

The CBO paints two future scenarios for the U.S. budget deficit and the national debt. But it plainly declares that fiscal disaster will strike in EITHER scenario. Furthermore …

The CBO states that its fiscal disaster scenarios could cause severe economic declines for decades to come, including hyperinflation and destruction of retirement savings.

The CBO then proceeds to admit that even its worse-case scenario could be understated by a wide margin due to panic in the financial markets or vicious cycles that are beyond control.

Separately, in its Flow of Funds Report for the second quarter, the Federal Reserve provides irrefutable data that we are already beginning to witness the first of these consequences in the United States: an unprecedented cut-off of credit to businesses and consumers.

Meanwhile, the Treasury Department shows that America’s fate remains, as before, in the hands of foreigners, with the U.S. still owing them $7.9 trillion!

And despite all this, neither Congress nor the Obama Administration have proposed a plan or a timetable for averting these doomsday scenarios. Their sole solution is to issue more bonds, borrow more, and print more without restraint.

That, dear Subscriber, is the epitome of insanity.

Yes, the great government bailouts of 2008 and 2009 have bought us some time … but they have promptly proceeded to sell us into bondage.

Yes, they have given us safe passage over tough seas … but only to throw our assets onto the global auction block for the highest bidders.

The one bright spot: Unlike some governments, ours does not conceal the evidence of its folly. Quite the contrary, the proof pours forth from these three government reports in relatively blunt language and unmistakably blatant numbers …

The CBO opens with a chart predicting the most dramatic surge in government debt of all time.

It shows that even in proportion to the larger size of the U.S. economy today, the government debt has ALREADY surpassed the massive debt loads accumulated during World War I and the Great Depression … and will soon surpass even the massive debt load of World War II.

“The analysis … does not incorporate the financial markets’ reactions to a fiscal crisis and the actions that the government would adopt to resolve such a crisis. Because [our] textbook growth model is not forward-looking, the analysis assumes that people will not anticipate the sustainability issues facing the federal budget; as a result, the model predicts only a gradual change in the economy as federal debt rises.

“In actuality, the economic effects of rapidly growing debt would probably be much more disorderly as investors’ confidence in the nation’s fiscal solvency began to erode. If foreign investors anticipated an economic crisis, they might significantly reduce their purchases of U.S. securities, causing the exchange value of the dollar to plunge, interest rates to climb, and consumer prices to shoot up.(Bolding is mine.)

The Fed’s data on page 12 tells it all: The impact on the U.S. credit markets is not just a future scenario. It’s happening right now.

Yes, the government is getting its money to finance its exploding deficits (for now). But it’s hogging all the available supplies, while American businesses and average consumers are getting shut out or even shoved out.

Specifically …

In the first half of last year, the U.S. Treasury raised funds at the annual pace of $411 billion in the first quarter and $310 billion in the second quarter.

But if you think that was a lot, consider this: THIS year, the Treasury has stepped up its pace of borrowing to annual rates of $1.443 TRILLION in the first quarter and $1.896 TRILLION in the second quarter. That’s 3.5 times and over SIX TIMES MORE than last year’s, respectively.

Meanwhile, the private sector is getting killed …

Last year, banks provided new credit at the annual pace of $472.4 billion in the first quarter and $86.7 billion in the second. This year, they’re not providing ANY new credit — they’re actually LIQUIDATING loans at the rate of $857.2 billion in the first quarter and $931.3 billion in the second. So if you’re running a business, you may want to think twice before asking your bank for more money. Instead, they may decide to TAKE BACK the money they’ve already loaned you!

Ditto for mortgages. Last year, mortgages were being created at the annual clip of $522.5 billion and $124 billion in the first and second quarters, respectively. This year, on a net basis, mortgages haven’t been created at all. Quite the contrary, the Fed reports that, on a net basis, they’ve been liquidated at an annual pace of $39.3 billion in the first quarter and $239.5 billion in the second.

Getting cash out of credit cards and other consumer credit is even tougher. Last year, folks were able to add to their consumer credit at annual rates of $115 billion and $105 billion in the first two quarters. This year, in contrast, they’ve been forced to CUT back on their credit at annual rates of $95.3 billion in the first quarter … and at an even faster pace in the second quarter — $166.8 billion.

Never before in my lifetime have I witnessed a more severe case of crowding out in the credit markets!

And never before has the CBO been so right in its forecasts of fiscal doomsday: One of its dire forecasts was already coming true even before it issued its report.

Each and every month, the Treasury reminds us of the single fact that no one in the Treasury wants to face:

The U.S. is deep in debt to the rest of the world, and on page 48, it provides the evidence: total liabilities to foreigners of $7,898,435 million (nearly $7.9 trillion)!

This isn’t a new record. It was actually slightly more last year. But the fact is NOTHING has been done to reduce our debt to foreigners. Quite the contrary, it is the deliberate policy of our government to pile up more — to sell foreign investors and central banks on the idea that they must continue to lend us money.

The fact that this could potentially put our nation into deeper jeopardy is overlooked. And the dire forecast by the CBO that foreign investors might pull the plug is pooh-poohed.

Tomorrow at 2 PM, in our online seminar, we’ll tell you why that could be a serious mistake. More importantly, we’ll show you precisely how you can harness these potentially overwhelming forces and even harvest them for profits.

If you’re already signed up, great! You should have your login instructions.

If not, TODAY is your last day. If you don’t register by midnight tonight, you’ll miss it.

P.S. If you want to see exactly where I get my quotes and data, just click on the page numbers cited above, and you’ll see the relevant pages I’ve extracted from the government reports with the critical informationhighlighted in yellow.

Money and Markets (MaM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Nilus Mattive, Claus Vogt, Ron Rowland, Michael Larson and Bryan Rich. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MaM, nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MaM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical in as much as we do not track the actual prices investors pay or receive. Regular contributors and staff include Kristen Adams, Andrea Baumwald, John Burke, Amy Carlino, Selene Ceballo, Amber Dakar, Dinesh Kalera, Red Morgan, Maryellen Murphy, Jennifer Newman-Amos, Adam Shafer, Julie Trudeau, Jill Umiker, Leslie Underwood and Michelle Zausnig.

Attention editors and publishers!Money and Markets issues can be republished. Republished issues MUST include attribution of the author(s) and the following short paragraph:

This investment news is brought to you by Money and Markets. Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com.

From time to time, Money and Markets may have information from select third-party advertisers known as “external sponsorships.” We cannot guarantee the accuracy of these ads. In addition, these ads do not necessarily express the viewpoints of Money and Markets or its editors. For more information, see our terms and conditions.